Industry Expert Bill Forster talks about QSR/Casual Dining challenges and how Maine Pointe helps companies achieve their goals.
Q: How has the QSR & Casual Dining industry been transformed over the last 36 months during the recession?
Most notable is the ‘dining down’ trend, which means that diners who would otherwise go out fine dining once or twice a week three years ago are now casual dining once or twice a week and fine dining only once or twice a month. The economy may be picking up, but restaurants are still seeing that push down. If you noticed,
McDonald’s announced global comparable sales growth of 6% in April (performance by segment was as follows: US up 4%, Europe up 6.5%, Asia/Pacific, Middle East, and Africa up 6.5%)
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Without question, the QSR world is still benefitting from habits learned during the bad economy, particularly the tendency to scale back on dining expenses. New menu items, Olympic sponsorships and the company's introduction of a $1 breakfast value menu in the United States helped McDonald’s surpass analysts' average call for overall same-store sales growth of 3.9 percent, Robert W. Baird & Co analyst David Tarantino announced on March 8, 2011.
That so-called trade-down effect is no longer strong enough to offset a spending retreat by young men and minority groups, who account for a large number of fast-food customers and have unemployment rates much higher than the overall U.S. jobless rate.
Among casual dining brands, such as Applebee’s and T.G.I. Friday’s, we see a similar (but not as dramatic) same-store sales growth led by new consumers moving from fine dining to these lower price points.
Q: Do you believe that the recession and the sharp rise in commodity prices have damaged restaurants’ relationships with their supply chains—particularly those who have had to cut costs aggressively?
No, an experienced owner/operator would not take that risk. First, damaging those relationships jeopardizes the lifeblood of your business. Second, long-term supplier relationships help restaurants to maintain quality and consistency, which are the bedrock of a dining experience.
Food is chemistry and switching something as simple-sounding as a french fry supplier, requires a process of qualification and testing, not to mention the development of strategic relationships.
Commodity suppliers realize that their customers—restaurants—cannot easily increase the cost of a burger. Hence, although commodity suppliers will complain about a lack of pricing power they realize and accept the transparent constraints that their customers face.
Q: What are the game-changing shifts in the QSR and casual dining industry related to supply chain?
For years, the industry’s biggest players had tied up first-tier food processors with exclusive contracts. Recently, those processors are either being sold, acquired, or divested—and as a result, those exclusive relationships are being challenged. Suppliers that historically were tied to a single global brand now have the ability to build more plants and go after tier-two businesses. It’s a massive change in the industry and we are seeing it happen across the entire supply chain.
Q: Let’s talk about global growth. We know that the most robust growth is happening outside of the US at this point in countries like China, India, Brazil and even smaller economies like Chile. What are the biggest challenges as chains expand their footprint into new markets?
I recently had a conversation with a multi-billion dollar food processor. They have invested tens of millions of dollars into China, including purchasing local companies, and they can’t get the model to work due to the complexity of the market. In China, for example, the country has 30 provinces and regional protectionism is a national sport. Moreover, there are at least six distinct cultures in China, each with its own social norms and palate. To add to this cultural tapestry, China also has an under-developed infrastructure and related support systems—the average city has little in the way of a reliable cold chain network. It reminds me of McDonald’s in the 80s and 90s. Often large companies are accustomed to thinking, “We’ve got density, we hire supply chain/ distribution, and we hit the ground with our way of doing business.” Restaurant market density makes it easy to map out the distribution model, and get full mode and load optimization. When you expand globally, you may have one location in country number one, three in country number two—and each one speaks a different language, requires different packaging, imposes different taxes, and demands different routes. The task is infinitely more challenging. Hiring (and retaining) the right team—in particular an organization that can provide total supply chain network optimization—is fundamental.
Q: What is the type of specialized expertise that Maine Pointe provides to support companies as they reach to become global players?
We offer dynamic knowledge based on accurate intelligence—from their supplier’s supplier all the way through their integrated supply chain, ending with their customer’s consumer. Where are the suppliers located? What modes are most beneficial? How do you maximize the loads inside the modes?
Q: What kind of expertise can an outside firm bring to a QSR or casual dining chain with a US-based focus?
What we bring to the table is a large network of relationships and rigorous process with decades of industry and category experience. Relationships with the CEO/CFO of major restaurant brands, tied to executive relationships with key suppliers in the protein, dairy, produce, paper, and equipment businesses. We worked with a national brand recently that bought tens of millions of dollars of chicken wings each year, but existed primarily as a beef-based chain. Because they buy a lot more beef than poultry, they did not have the leverage to get the best price. They invited us in, and we were able to save millions of dollars, getting them an even better product at a lower price. In this industry, Maine Pointe has high-level relationships with suppliers—relationships that allow us to negotiate with executive-level decision makers.